Readers' comments

Monetary policy of India should better be modified.
Yeah, it is distracting the growth rate which is not good.

The RBI has been very concerned of inflationary situation, businesses in India, etc. A loosing of interest rates is feasible but the usage of the cheaper money would matter a lot as there's a lack of productive politicians, consumers, producers, businesses, etc. in the economy.

"Being productive all the time by economic players matters a lot in this commercial planet".

Egypt is a mess now, slacking monetary policies wouldn't work and vandalizing is underway in that economy, and that has been costing a lot to it. Oh, come on, somebody gotta figure the importance of sacrifice now there!

China are in a great shape, scientific management exits there, I have that conviction.

Brazil is far from the unic country in this list which has a large macroeconomics maneuver opportunity. Brazil hold the second highest interest rate, and primary surplus. Then this list is totally wrong. I think these analysts have missed some important information during the study process.

I beg to differ. Although it is hard to argue against Brazil´s ample primary surplus and high nominal interest rate levels, the country´s real interest rate is roughly 4%. Inflation has been steadily rising on the back oa very tight job market. Policy makers will thing twice before cutting SELIC if spot inflation and inflation expectations prove to be persistent.

I agree with other commenters that China is in the wrong category. While official numbers may show China has lots of capacity to open the taps, and while officials certainly fear another export dip, the tremendous amount of off the book loans at various levels of government is well known and documented. Inflation is still smoldering, and the risks of loosening are pretty high.

No, I'm not talking of LMFAO. I mean, governments and their supporters who hold firm the right macroeconmic vision against the vision behind the above study, which the 'recent' IMF may well support, are sexy really.

The study is obviously based on the loanable funds theory for long-run determinants of interest rates. Interest rates do not change that way. The vision of the study, identical with the Treasury view, would lead to the wrong idea of expansionary austerity. The recent IMF has been along this line for a couple of decades. The original role of the Fund was to help developing countries both implement short-run expansionary policies at downturns and long-run policies to improve the schedule of the marginal efficiency of capital.

In other words, the background vision of the above study could not explain the mechanism of the emerging-economy crises which ‘broke out’ in 1997 and 2001.

On the other hand, mainstream new-synthesis economists often criticise the IMF in a similar manner as above and in the sense that the Fund applies the loanable funds theory to short-run determinants of interest rates, but they keep in mind the loanable funds theory for long-run determinants of interest rates. Considering determinants of the schedule of marginal efficiency of capital, however, the loanable funds theory could not be applied to long-run determinants of interest rates, either. When the marginal efficiency of capital was extremely low, a mainstream expansionary policy – fiscal or monetary – would only ‘evaporate’, for much of the increased money supply due to the transactions-demand for money encouraged by the authorities would eventually shift from the amount of money held by the transactions- and precautionary-motives to that held by the speculative motives (i.e. the liquidity-preference theory) unless the schedule of the marginal efficiency of capital improved. Also, in an open system, the credit would leak abroad as part of the amount of money held by the speculative motives, adding pressures to market interest rates at home. Those pressures are severe with the hasty, premature and haphazard market-liberalisations of today. The authorities need to implement policies that would eventually improve the schedule of the marginal efficiency of capital, and the mainstream economics has a perspective (i.e. the loanable funds theory) insufficient to explain the relation of long-run determinants of interest rates.

The Asians learned from the Asian financial crisis of 1997/8 not to have large deficits and debts and instead to build reserves. China learned and it wasn't even much affected by the crisis because of its capital controls. Indonesia and South Korea learned. So did Russia from its own crisis in the 90s.

The Economists' advice should perhaps be the other way round. Europe should do what the Asians are doing not vice versa.

While I think you have a good point, rather than lumping Russia together with more monetarily prudent countries like Indonesia and South Korea, I would put Russia in the same category as Saudi Arabia: A big petroleum exporter with massive currency reserves only by virtue of running a consistent trade surplus on the back of high commodity prices. The fiscal profligacy in Russia should by rights show that countries as being far less flexible than they are. I think The Economist should add an oil price lever to this index to show just how badly the finances of the petroleum exporters - Saudi Arabia, Russia, Venezuela - would be affected should a drop in global demand hit the price of their commodity exports.

Singapore, China, South Korea, and to a lessor extent Indonesia and Saudi Arabia are five of the most stable and growing economies of the world. Odd how they are encouraged to mimic European governments fiscal policies. Without the authors stated hypothesis one is left to presume that the desired outcome would be lots of government borrowing so that their economy's would have same or similar results to the Europeans.

Chinese economic growth is stable. Historically yes, moving forward no. Eventually those trillions in unproductive investments are going to rot the banks'/state's balance sheets right through. I personally am not excited about the day.

State-directed lending doesn't work. Remember when NPLs were 40% of Chinese bank loan books in early 2000s? Probably not, but it happened. This time around will probably be worse. With a lot more credit having been extended, this is a very serious problem.

"If so, emerging economies would once again be hurt by falling exports..."

The drop in exports, particularly of raw materials, is already on our doorstep. As shown here, the Baltic Dry Index, one of the only leading, non-revisable indices, is following the same declining pattern that it took just prior to the beginning of the Great Recession:

Since the beginning of 2012, the BDI has fallen by over 50 percent and since its peak in October of 2011, it has dropped by 64 percent in a pattern that appears predictive of a painful economic slowdown.

One who has the cash I love everything about Obama, even if he was the worst President ever, and became even Satan Himself, I would honor Rev.Martin Luther King and all who followed King, by saying thank you God for making Obama the President. I wanted Gen.Colin Powell but I hate war and I think Powell turned down the calling for kind of the same reason. America needs people like Mother Theresa as our leader, not war Generals, not Lawyers (that includes Obama of course), not solely rich and elite members (I would still include them, but doing so with balance, since they’re American citizens and everybody brings something to the table regardless their own personal level of righteousness or evil. Yes even adulterers and those with skeletons in their closets are still capable of being good politicians but yes personal life issues does affect other areas and so should be taken into considering but not to an extreme or witch hunts and total exclusion). The bottom line is that everybody is playing politics even the average ordinary American citizens who consider themselves the main voice unheard of America. They’re just as much a politician as the people in America’s capital. They choose sides and candidates according to party, not relevance. They choose sides due to their anger and hatred and racism and religion. I’ve seen horrible things coming from the American people and wonder who is more evil, their politicians, or the people who elected those politicians? Be grateful that one of King’s dreams came true, and sorrow not for the man walking past you carrying his own cross wearing a crown of thorns and a robe drenched purple with blood. No, do like he said on his way to Golgotha, mourn for yourselves for what is coming due to your votes and what you’ve done to your own nation.

If China's exports fall, doesn't that spell unemployment in the export zone.? Sure, they have the means to import food to feed their people almost no matter what. But do they have the capacity to grow by developing internal markets? Do they have the necessary institutions? How else might they use all those monetary reserves if not to finance domestic consumption industries? To build up their military? Will we sell them the means?